Monday, January 7

Paul Krugman - Taxes and Fear

...for 30 years American politics has been dominated by a political movement practicing Robin-Hood-in-reverse, giving unto those that hath while taking from those who don’t. And one secret of that long domination has been a remarkable flexibility in economic debate. The policies never change — but the arguments for these policies turn on a dime.

When the economy is doing reasonably well, the debate is dominated by hype — by the claim that America’s prosperity is truly wondrous, and that conservative economic policies deserve all the credit.

But when things turn down, there is a seamless transition from “It’s morning in America! Hurray for tax cuts!” to “The economy is slumping! Raising taxes would be a disaster!”

Thus, until just the other day Bush administration officials were in denial about the economy’s problems. They were still insisting that the economy was strong, and touting the “Bush boom” — the improvement in the job situation that took place between the summer of 2003 and the end of 2006 — as proof of the efficacy of tax cuts.

But now, without ever acknowledging that maybe things weren’t that great after all, President Bush is warning that given the economy’s problems, “the worst thing the Congress could do is raise taxes on the American people and on American businesses.”

And even more dire warnings are coming from some of the Republican presidential candidates. For example, John McCain’s campaign Web site cautions darkly that “Entrepreneurs should not be taxed into submission. John McCain will make the Bush income and investment tax cuts permanent, keeping income tax rates at their current level and fighting the Democrats’ plans for a crippling tax increase in 2011.”

What “crippling” tax increase, which would tax entrepreneurs into submission, is Mr. McCain talking about? The answer is, proposals by Democrats to let the Bush tax cuts for people making more than $250,000 a year expire, returning upper-income tax rates to the levels that prevailed in the Clinton years.

And we all remember how little entrepreneurship there was, how weakly the economy performed, during the Clinton years, right? Oh, wait. (I’ve put some charts comparing job performance during the Clinton and Bush years on my Times blog, It’s pretty startling how comparatively weak the Bush era looks.)

Never mind. The whole point of scare tactics is that they can work even in the face of inconvenient facts.

And what I’m not sure about is whether the Democrats are ready for the fight they’re about to face.

Not to put too fine a point on it, Barack Obama won his impressive victory in Iowa with a sunny, upbeat message of change.

But there’s a powerful political faction in this country that understands very well that any real change will create losers as well as winners. In particular, any serious progressive reform of health care, let alone a broader attempt to reduce middle-class insecurity and inequality, will have to mean higher taxes on the affluent. And members of that faction will do whatever it takes to scare people into believing that change means disaster for the economy.